FASB Completes its Financial Instruments Project with the Issuance of Targeted Improvements to Hedge Accounting

• DOI: http://doi.org/10.1002/jcaf.22314
• Author: Paul Munter
• Published date: 01 January 2018
• Date: 01 January 2018

156

© 2018 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22314

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FASB Completes its Financial

Instruments Project with the

Issuance of Targeted Improvements

to Hedge Accounting

Paul Munter

Coming out of the financial

crisis, the Financial Account-

ing Standards Board (FASB)

and the International Account-

ing Standards Board (IASB),

had tentatively agreed that

their respective standards for

financial instruments could

be improved and a converged

standard could improve the

comparability of that informa-

tion across entities by focusing

on the instrument’s contractual

cash flow characteristics and

the entity’s business model to

classify and measure financial

assets and that hedge account-

ing would better reflect an

entity’s economic position if

it was more aligned with an

entity’s risk management poli-

cies. While the IASB proceeded

with this approach in finalizing

its requirements on accounting

for financial instruments,1 the

FASB decided that targeted

improvements to U.S. generally

accepted accounting principles

(GAAP) rather than a more

holistic approach would better

serve its constituents.

The FASB has long

expressed concerned that while

the complexity, risks, and vol-

ume of financial instruments

have been increasing, the appli-

cable accounting and financial

statement disclosure guidance

has failed to keep pace with

those changes. The financial

crisis increased these concerns

and focused the FASB’s and

IASB’s attention on the goal

of providing financial state-

ment users with more decision-

useful information about an

entity’s involvement in finan-

cial instruments and its hedg-

ing activities, while reducing

the complexity in accounting

for those instruments.

The FASB ultimately

decided that U.S. GAAP could

best be improved in stages

by making targeted improve-

ments to:

• Classification and mea-

surement requirements

addressed in ASU 2016-012;

• Impairment of financial

assets (i.e., credit losses)

addressed in ASU 2016-133;

and

• Hedge accounting

addressed in ASU 2017-12.4

ASU 2016-01

The amendments in ASU

2016-01 will most significantly

affect accounting for invest-

ments in equity securities and

financial liabilities to which

entities apply the fair value

option. Additionally, the

amendments will impact the

presentation and disclosure

requirements that apply to

financial instruments. The

accounting for investments in

debt securities (including loans

and receivables) is unchanged

from previous U.S. GAAP

guidance.5 Accordingly, the